May 27 (Bloomberg) -- Office vacancies will more than
double and rents slump in Perth and Brisbane as mining
investment slows and companies cut costs, Morgan Stanley said.

Vacancies in Perth’s central business district will surge
to 17.5 percent in the next three years from 6.5 percent now,
and Brisbane’s will soar by about 10 percentage points to 23
percent, analysts led by Sydney-based Lou Pirenc wrote in an e-mailed note today. Rents could drop by as much as 9.3 percent in
Perth and 6.4 percent in Brisbane by 2014, the bank forecasts.

Falling commodity prices and rising costs have led to major
resource producers including BHP Billiton Ltd., Rio Tinto Group
and Woodside Petroleum Ltd., deferring or canceling projects.
The Australian government forecast slower growth this month when
it released federal spending plans for the fiscal year starting
July 1 as the nation’s record mining investment boom peaks and
growth in China, its largest trading partner, slows.

“As mining investment has been a robust source of white-collar employment growth in the past decade, we believe the
associated unwind in investment in the coming years will
adversely impact CBD office demand,” Pirenc wrote.

The mining investment boom, which is widely expected to
peak this year, may have already reached its high point in 2012,
according to the Morgan Stanley. With 27 percent of Perth’s city
center work force and 18 percent of Brisbane’s directly or
indirectly employed by the resources industry, the slowdown will
weigh on office demand and the performance of landlords, the
bank, which rates office property trusts underweight, said.

“Every REIT with office exposure generally has Perth and
Brisbane exposure,” Pirenc wrote, adding that Investa Office
Fund, Dexus Property Group and Commonwealth Property Office Fund
will be most affected. “With fundamentals already difficult, we
expect the slowdown in investment spending will place further
pressure on office REITs.”

Morgan Stanley’s forecasts are based on an assumption that
engineering and construction-related investment tied to mining
and oil and gas industries will fall 40 percent in the next
three years.

If resources investment slows by only 5 percent over the
same period, vacancies would rise to almost 8 percent in Perth
and 14 percent in Brisbane, Morgan Stanley said. They could
surge to 20 percent in Perth and 25 percent in Brisbane if
investment slumps by 50 percent, it said.